2023 was another active year for the False Claims Act (FCA) – with the Supreme Court settling aspects of important questions relating both to what must be pled about the nature of a defendant’s knowledge in order to state an FCA claim and the government’s dismissal authority over qui tam suits; the government’s continued pursuit of cybersecurity fraud and COVID-19 relief related fraud; and continued vigorous public and private enforcement of the Act in the health care sector.
2024 looks to be no different. While the Supreme Court has yet to weigh in on a broadening circuit split concerning the proper causal standard for FCA cases predicated on violations of the healthcare Anti-Kickback Statute (AKS), its Supervalu decision concerning scienter shows that the highest court is keeping an eye on the statute, its interpretation, and the government’s methods of enforcement. Thus, these issues will continue to be thoroughly and heatedly litigated in the lower courts. And, if the Supreme Court opens new pathways for challenging agency interpretations of payment-related statutes and regulations by abolishing or curtailing the long-established doctrine of Chevron deference, relators and defendants will undoubtedly search out opportunities to revisit the nexus between regulations and the FCA. Finally, with the lengthened 10-year statute of limitations Congress enacted[1] for pursuit of fraud in COVID-19 relief loans and grants, we expect DOJ will expand its current menu of smaller value cases to larger and more complex FCA suits and settlements involving both borrowers and the financial institutions who processed COVID-19 relief applications.
Below are some predictions, expectations, and developments related to FCA enforcement that we will be closely watching in 2024.
Disagreement among the lower courts on key elements of an FCA claim
Absent direction from the Supreme Court, we expect that there will continue to be conflicting decisions coming out of the lower courts on the elements of causation and scienter. With regard to causation, circuit courts of appeal are currently divided, with some circuits requiring a “but for” causal nexus for liability to flow from claims that are allegedly induced by a violation of the AKS, and others following a more traditional proximate cause analysis. That circuit split is likely to deepen when the First Circuit issues its opinion in United States v. Teva Pharmaceuticals USA, Inc. In the meantime, the government and relator’s counsel will continue to press for application of the more liberal causation standard in cases based on an AKS violation.
In the wake of the Supreme Court’s decision in SuperValu, courts will continue to grapple with defining the contours of the requisite proof of a knowing violation of the Act. The Supreme Court’s holding that the FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs has the knock-on effect of reducing a defendant’s ability to seek a dismissal based solely on the defense that no knowing violation can be proven because the defendant relied upon an objectively reasonable interpretation of an ambiguous regulation. Under SuperValu, such scienter-focused defenses may be pushed off to summary judgment, increasing the potential cost of litigation.
The prospect of longer and more costly qui tam litigation for FCA defendants could be somewhat ameliorated by the broad latitude conferred on the government to intervene and dismiss declined qui tam actions under the Supreme Court’s decision in Polansky. But despite the Court’s grant of broad power to terminate a declined case, there is no reason to believe that the DOJ will use that authority with any greater frequency than it has in the past. The Department appears to be wedded to a policy of invoking its dismissal power in only the rare case where supervening practical, logistical, or precedential concerns make it all but impossible for the government to allow the litigation to proceed.
Continuing emphasis on FCA enforcement activity in the health care and life sciences industry
In the health care space, as DOJ continues to cast its attention on managed care plans and private equity firms invested in health care companies, we also expect increased investigative activity in the genetic testing space. There have been signs that Medicare and Medicaid contractors are closely reviewing medical necessity decisions for genetic tests. And, in December 2023, pharmaceutical company Ultragenyx Pharmaceutical Inc. agreed (without admitting liability) to pay US$6 million to resolve allegations that it violated the FCA by paying kickbacks purportedly associated with a sponsored genetic testing program. DOJ alleged that Ultragenyx submitted false claims to Medicare and Medicaid by paying remuneration to (1) a genetic testing laboratory to provide test result reports so that Ultragenyx employees could target the relevant health care providers to market a drug; and (2) to patients in the form of free genetic tests. Going forward, it will be important for drug manufacturers to consider how such genetic testing programs can be structured in a compliant way.
DOJ’s use of the FCA to further regulatory enforcement aims
Finally, if, as many predict, the Supreme Court overturns or significantly narrows Chevron deference, it could have an impact on DOJ’s ability to proceed in FCA cases predicated upon agency interpretations of federal law. In Chevron v. Natural Resources Defense Council, the Supreme Court afforded administrative agencies a great amount of latitude to interpret and to fill gaps and ambiguities in their governing statutes. When Congress has directed an agency to adopt regulations to carry out the policies reflected in federal statutes, Chevron binds courts to respect the agencies’ expertise and judgments about how to interpret the law. But the Supreme Court heard argument on January 17, 2024, in two cases in which parties have asked the Court to abolish or weaken that doctrine. If it does so, it would take some interpretive power away from Executive Branch agencies – which often have the subject matter expertise and policy-making experience – and give more leeway to the courts to interpret the law without reference to agencies’ own gloss.
Chevron deference sometimes comes into play in FCA cases involving so-called implied false certification. Where a defendant, by submitting claims for payment to the government, impliedly certifies that it is in compliance with a federal statute – the AKS, for example – DOJ often advocates that the agency’s regulations or guidance documents reflect the best interpretation of what the law should be. But, if Executive Branch agencies are curtailed in their ability to enforce their interpretations of statutes under their purview, or if courts are no longer bound to defer to those interpretations, the parties could be free to argue that the court should have the final say on how the statute should be interpreted. That could give the government, relators, and defendants more leeway to advocate for an interpretation of the law that suits their own ends in FCA litigation.
Staying on top of these and other potential developments in FCA enforcement will be critical for companies moving forward. The FCA practice at Hogan Lovells stands ready to help you with our deep bench of market-leading lawyers.
References:
[1]The PPP and Bank Fraud Enforcement Harmonization Act of 2022, H.R. 7352.